Figures from the U.S. Bureau of Labor Statistics.
[208]. For this reason it is often said that gold is not a good measure of deferred payments. For example, if somebody were to give you a note for a thousand dollars, payable five years from now in gold coin, the amount of goods which you will be able to buy with the proceeds of this note when it is paid may be much greater, or much less, than what you could buy today. Thus you would get your money back, but it would not have the same purchasing power, and purchasing power is what counts. To determine the actual purchasing power of gold at different dates, figures known as “index numbers” are compiled by various economic organizations. Index numbers are compiled in this way: Take a certain amount of various things which are in common use, say a barrel of flour, ten pounds of butter, a bushel of potatoes, so much steel, leather, lumber, and other commodities,—make the list long enough to cover the general range of prices. Add together the current prices of these things today and you have an index number. Ten years from now, if you take exactly the same amounts of exactly the same commodities and add together the prices, you will have another index number. By comparing them you can say that the purchasing power of money has gone up or gone down, as the case may be. The index number more than doubled during the years 1914 to 1919; that is to say, the purchasing power of money was cut in two.
[209]. People are in the habit of thinking that the high cost of living is due largely to “profiteering” and monopoly. To some extent, no doubt, this is true. But the three most important factors in the high cost of living are: (a) the inflation of money and credit; (b) decreased production; and (c) heavy taxes. It is these things that give the profiteers and monopolists their opportunity.
[210]. Bonds are promises to pay a certain principal sum at the expiry of a certain term of years. They are issued by governments and by business corporations. They bear interest annually or semi-annually. In the case of registered bonds the name of the bondholder is inscribed on the books of the government or company and a check for the interest is sent to him. Coupon bonds, on the other hand, are payable to bearer and small tickets or coupons must be cut off by the holder and presented on each interest date. Stocks are merely shares in a business corporation and do not carry an obligation to pay a definite sum at any given time. There are two kinds of stock, preferred and common. The preferred stock is entitled to a stated dividend; the common stock takes what is left of the net profits if there are any.
Bonds, as a rule, yield a smaller return than preferred stock, because the security is better. The man who holds common stock takes the greatest risk of all and for this reason expects the largest rate of dividend. When you invest money the income which you get from it is proportioned to the risk which you take. An absolutely safe investment like government bonds brings in only four or five per cent annually; the preferred stock of railroads or industrial corporations may yield six or seven per cent; the common stock of some companies pays as high as eight or ten per cent. When you find that an investment promises a large income you may be sure that the risk is proportionately large. All sorts of “get rich quick” schemes are placed before the public by promoters who promise high rates on “safe” investments. Such investments are not safe; if they were, the banks and large capitalists would put their money into them. To protect the public from these frauds, some states have passed “blue-sky laws,” which require that every stock-selling concern shall be investigated by the state authorities before it is allowed to take money from the people.
[211]. If anything, this estimate is probably too low. In 1921 the tax commissioner of Massachusetts estimated the tax burden in that state to be $117 per capita.
[212]. The cities spend a great deal more than the rural districts and the per capita burden there is consequently much heavier.
[213]. In the case of some heavily-taxed forms of merchandise, such as tobacco, more than half the price is made up of taxes.
[214]. There are some cases, of course, in which the tax cannot be shifted; for example, taxes on vacant or unimproved land, or taxes on fixed incomes and salaries. But all this is a small element in the total tax bill.
[215]. Many public services which are now paid for out of the general taxes were at one time supported by charging only those who made use of them. Many of the first macadam roads were built by private companies, which collected a few cents in toll from every person using them. Toll bridges were not uncommon a generation ago and they still exist in some places. Fees were charged in many places by the schools, so much per pupil. Before regular police forces were established, well-to-do people hired watchmen to patrol the streets around their property, the poorer sections of the city being left without any protection at all.